Basal cell carcinoma (BCC) is characterized by frequent loss of PTCH1, leading to constitutive activation of the Hedgehog pathway. Although the requirement for Hedgehog in BCC is well established, the identity of disease-initiating cells and the compartments in which they reside remain controversial. By using several inducible Cre drivers to delete Ptch1 in different cell compartments in mice, we show here that multiple hair follicle stem cell populations readily develop BCC-like tumors. In contrast, stem cells within the interfollicular epidermis do not efficiently form tumors. Notably, we observed that innervated Gli1-expressing progenitors within mechanosensory touch dome epithelia are highly tumorigenic. Sensory nerves activate Hedgehog signaling in normal touch domes, while denervation attenuates touch dome-derived tumors. Together, our studies identify varying tumor susceptibilities among different stem cell populations in the skin, highlight touch dome epithelia as "hot spots" for tumor formation, and implicate cutaneous nerves as mediators of tumorigenesis.